Obama Proposes Higher Tax Revenue To Curb Deficit

President Obama's call for $1.5 trillion in tax hikes to reduce the deficit puts him on a collision course with congressional Republicans. Some of Democratic supporters may welcome Obama's newly combative negotiating style, but deficit watchdogs warn his plan falls short in key areas.

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DAVID GREENE, Host:

It's MORNING EDITION, from NPR News. Good morning. I'm David Greene, sitting in for Renee Montagne.

STEVE INSKEEP, Host:

I'm Steve Inskeep. President Obama's put down a marker for how he says the government should tackle its deficit, a combination of tax hikes and spending cuts that would eliminate trillions of dollars in red ink over a decade. The president's plan is markedly different from the approach of congressional Republicans, who've said they want to rely on budget cuts only. And that sets the stage either for serious negotiations or for a long stalemate until the next election, and we're going to get some clues in a moment from Capitol Hill. First, NPR's Scott Horsley has details of what the president is suggesting.

SCOTT HORSLEY: There are a lot of big numbers in the president's deficit-cutting plan, but the one that jumps out is one-and-a-half trillion. That's how much additional tax revenue the president is counting on over the next decade.

INSKEEP: I promise that it's not because anybody looks forward to the prospect of raising taxes or paying more taxes. I don't.

HORSLEY: But with tax revenues at their lowest level in decades relative to the economy, Mr. Obama says wealthy Americans need to pay more.

OBAMA: I'm eager to work with Democrats and Republicans to reform the tax code to make it simpler, make it fairer, and make America more competitive. But any reform plan will have to raise revenue to help close our deficit.

HORSLEY: Mr. Obama is also proposing what he calls the Buffett rule. Billionaire investor Warren Buffett has complained his tax rate is lower than his secretary's, because much of his income is from dividends and capital gains. In a gesture that's political value likely outweighs its economic impact, Mr. Obama called on Congress to set a minimum tax rate for anyone making more than a million dollars a year.

OBAMA: Middle-class families shouldn't pay higher taxes than millionaires and billionaires.

HORSLEY: The president's push for higher tax revenue puts Mr. Obama on a potential collision course with the top Republicans in Congress. Yesterday, he promised to veto any deficit-cutting bill that requires sacrifice from Medicare recipients, but not from wealthy taxpayers.

OBAMA: We are not going to have a one-sided deal that hurts the folks who are most vulnerable.

HORSLEY: The president's tone is more combative now than it was a couple of months ago during the debt-ceiling negotiations. He's no longer facing the threat of a disastrous government default. And political analyst Ross Baker of Rutgers University says Mr. Obama is no longer bending over backwards in search of an elusive bargain with the GOP.

ROSS BAKER: I think that at some point he was going to have to put away the olive branch and unsheathe the sword. And I guess this is it.

HORSLEY: Earlier this summer, Mr. Obama was willing to trim Social Security benefits and even raise the eligibility age for Medicare. His new plan includes neither of those concessions.

OBAMA: So we will reform Medicare and Medicaid, but we will not abandon the fundamental commitment that this country has kept for generations.

HORSLEY: While the president's tougher bargaining stance delighted some on the left, it left deficit hawks disappointed. Maya MacGuineas of the Committee for a Responsible Federal Budget says the relatively modest cuts to Medicare in Mr. Obama's proposal don't go far enough.

MAYA MACGUINEAS: The president talks about going big, which is exactly what you want people to be saying, but he doesn't quite get there. He goes biggish, or maybe he goes medium.

HORSLEY: Diane Lim Rogers of the deficit watchdog Concord Coalition complains Mr. Obama's tax proposals also fall short of what's needed. The president's plan would leave costly Bush-era tax cuts in place for all but the wealthiest Americans.

DIANE LIM ROGERS: It's very hard to make the case that the high-end Bush tax cuts were bad policy that wasn't worth its cost, while the rest of the Bush tax cuts that are the bulk of the cost were somehow worth their cost.

HORSLEY: None of the tax hikes in the president's plan would take effect until 2013, when the administration hopes the economy will be stronger. For now, Mr. Obama's pushing to cut taxes in hopes of boosting job growth. Ross Baker says the White House needs to do a better job of explaining that two-step approach - trying to goose the economy now, while cutting deficits later.

BAKER: On the face of it, it may appear like a person who simultaneously is standing next to the air conditioner and has the furnace going full blast.

HORSLEY: Even if Congress doesn't warm to the president's deficit proposal, it's likely to provide the kindling for some fiery rhetoric on the campaign trail. Scott Horsley, NPR News, the White House.

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